Amazon selling Kindle Fire at a loss, putting heat on other tablet-makers

The Amazon Kindle Fire is being touted as the hot new thing in Web-content consumption and a potential iPad killer. However it turns out, it certainly has shaken-up the tablet world.

The $199 Fire, unveiled Sept. 28 and scheduled for general availability in November, is putting pressure on other tablet-makers to bring down their prices.

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Shortly after its unveiling, Research In Motion dropped the price for the BlackBerry PlayBook by $200, down to $299 (amid speculation that the company could abandon the PlayBook.) The  price for the HTC Flyer followed suit, reports And early reviews indicate that price is the main reason it could pose a threat to the iPad.

How is Amazon doing it? Apparently, by selling the Fire at a loss.

Market researcher IHS iSuppli’s Teardown Analysis Service did a breakdown of the Fire’s components and came up with a preliminary estimate of $191.65 for the materials. Adding in manufacturing expenses brought the cost of making a Fire to $209.63, iSuppli estimated.

The apparent strategy, iSuppli says, is to not worry about profits from selling the devices and digital content, but to make it up promoting merchandize on its online store.

Amazon appears to be following the path blazed (though apparently not invented) by King Gillette in the early 20th century, when he practically gave away his new safety razors so people would use them and continually by his company’s disposable blades.

But among digital content providers, Amazon’s approach is unique, iSuppli’s analysis says, because no other device maker has such a large retail business to tie into its product.

For tablet-makers and users, the more immediate issue is the influence the Kindle Fire could have on the price of other tablets.

The iPad has been making inroads to some government agencies since its debut. Virginia legislators, for instance, have found it to be an easy, efficient way to keep track of legislation. The Veterans Affairs Department is starting to allow iPads and iPhones among the mobile devices in its enterprise.

But budgets are tight and the price for mobile devices could cause some agencies to back off. The FBI, for instance, just canceled the purchase of 600 iPads to be used by investigators in the field because of budget concerns. Devices that cost considerable less might prompt the agency to reconsider, and could get other agencies to consider buying tablets.

The impact an inexpensive tablet could have was displayed in August, when Hewlett-Packard announced it was discontinuing its still-new HP TouchPad and dropped the price for existing models to $99. The ensuing buying frenzy led to speculation that lower prices might be just the thing that allows other tablet-makers to step into the ring with Apple.

The Kindle Fire may prove that point. But whether other device makers, which don’t have Amazon’s store behind them, can follow the Gillette model remains to be seen.

About the Author

Kevin McCaney is a former editor of Defense Systems and GCN.

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